Scrapping the Health Insurance Penalty Tax (March, 2019)

March 27, 2019

By John McClaughry

            The House Health Care Committee has brought out a bill (H.524) that at best has nothing to recommend it, and at worst, would make Vermont’s health care situation worse for thousands of innocent people.

            The main impetus for this bill seems to be the determination of Chairman William Lippert (D-Hinesburg) to defeat, in Vermont, any effort by Republicans in Washington to relax some of the restrictive and compulsory features of the Affordable Care Act of 2010.

            A key feature of the ACA was a mandate to purchase Federally-approved health insurance, enforced by taxing persons for not buying such insurance. The penalty tax was the greater of $695 or 2% of household income. This was so unpopular that the Obama administration created fourteen classes of exemptions, including vaguely defined “hardship”, to keep from having to levy its own tax on vulnerable families.

 In 2017 the Republican Congress set the Obamacare penalty tax rate at zero, effectively eliminating it. Chairman Lippert, a long time partisan for universal government-run health care, wants it back in Vermont.

Thus he has pushed his committee to fully reinstate the ACA mandate and tax on working people with incomes above the Medicaid eligibility level and not covered by employer insurance, who don’t enroll in plans offering expensive “minimum essential coverage.”  If those people can’t afford to buy such insurance, even with ACA tax credits, his bill (H.524) would lay on a new Vermont tax to force them to buy it.

Lippert is quoted in the media (Politico, 3/8/19) as saying. “We don’t want to disincentivize people.” His perverse idea of the “incentive” he wants to preserve is threatening people with penalty taxes until they comply, and if they still won’t pay, starting the tax collection process, ending with putting liens on homes and vehicles.

 Last year the legislature passed a Vermont ACA mandate for 2020, and created a 7-person Working Group to recommend “a financial penalty or other enforcement mechanism”.  That group could not agree on a new tax to force working people to buy insurance, but Lippert’s committee decided it was a good idea.

The good news is that last week the House Ways and Means Committee balked at levying that new tax. Its proposed rewrite of H.524 preserves the mandate enacted in 2018, but scraps the penalty tax. Instead, Vermonters would have to indicate on their tax returns whether they had minimum essential coverage the previous year. If they did not, the Department of Vermont Health Access would reach out to persuade them to take advantage of the ACA subsidies.

The House will likely vote on the two versions this week. The odds are that the Lippert penalty tax version will be rejected. This may not be the final episode: The Senate could reinstate it. Gov. Scott’s spokesperson announced on February 2 that “we will not support a financial penalty as a mechanism to induce health care coverage.”

There is more not to like in the Lippert version of H.524. The ACA specifically exempted participants in four well-established Health Care Sharing Ministries from the individual mandate. These are faith-based groups whose participants each month make payments sufficient to meet the health care expenses incurred by members the previous month. More than 500 Vermonters belong to these groups, and the number is likely to grow.

The Working Group refused to support an individual mandate that would strip these caring and sharing people of their exemption from a penalty tax. The only advocate in the group for removing this exemption was the representative from Blue Cross Blue Shield of Vermont, supposedly a socially conscious mutual insurance company. The demand for corporate welfare never flags.

Lippert declares of health sharing ministries that “this isn’t insurance”. He’s right; it’s not. It’s people giving from their hearts to succor their fellow believers in need. No matter, to a legislator whose motto seems to be “No Escape!” If the legislature should ultimately revive the penalty tax, the Health Sharing Ministries should be given the ACA exemption, alongside the religious conscience exemptions for such groups as Christian Science.

Both versions of the bill mandate making small businesses of up to 100 employees (up from the current 50) be pooled to their competitive disadvantage with the individual market pool. That needs to be dropped. But the legislative rejection of the penalty tax would certainly show that even a left-leaning legislature has enough good sense not to lay new tax burdens on vulnerable working families.

John McClaughry is vice president of the Ethan Allen Institute.

{ 1 comment… read it below or add one }

Deanne April 4, 2019 at 12:52 am

How people with so little logical ability can get elected to office, I do not understand. How bad does it have to get before people start waking up and voting for people who have a bit of common sense?


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The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

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